Dealertrack Technologies, Inc. Reports Third Quarter 2012 Financial Results

Dealertrack Technologies, Inc. Reports Third Quarter 2012 Financial Results

Updates 2012 Guidance Based on Results and Acquisitions

LAKE SUCCESS, N.Y.--(BUSINESS WIRE)-- Dealertrack Technologies, Inc. (NAS: TRAK) today reported financial results for the third quarter ended September 30, 2012. The Company changed its name from DealerTrack Holdings, Inc. on November 7, 2012.


GAAP Results for the Third Quarter 2012

  • Revenue for the quarter was $99.1 million, as compared to $95.8 million for the third quarter of 2011.

  • GAAP net loss for the quarter was $(2.9) million, as compared to GAAP net income of $5.4 million for the third quarter of 2011.

  • Diluted GAAP net loss per share for the quarter was $(0.07), as compared to GAAP net income per share of $0.13 for the third quarter of 2011.

GAAP net loss for the three months ended September 30, 2012 includes a $3.3 million, or $0.08 per share, non-cash charge (net of taxes) from an adjustment to fair value relating to a warrant.

Non-GAAP Results for the Third Quarter 2012

  • Adjusted EBITDA for the quarter was $27.0 million, as compared to $25.8 million for the third quarter of 2011.

  • Adjusted net income for the quarter was $12.5 million, as compared to $14.7 million for the third quarter of 2011.

  • Diluted adjusted net income per share for the quarter was $0.28, as compared to $0.34 for the third quarter of 2011. As a result of updating the Company's full year expected effective tax rate, a tax benefit that was realized in the prior quarter was reversed in the third quarter, negatively impacting diluted adjusted net income per share by $0.02. Adjusted net income per share for the third quarter would have been $0.30 without the impact of this reversal.

GAAP Results for the Nine Months Ended September 30, 2012

  • Revenue for the nine months was $287.1 million, as compared to $262.0 million for the same period in 2011.

  • GAAP net income for the nine months was $20.0 million, as compared to $32.3 million for the same period in 2011.

  • Diluted GAAP net income per share for the nine months was $0.45, as compared to $0.76 for the same period in 2011.

GAAP net income for the nine months ended September 30, 2012 includes a $15.9 million, or $0.36 per share, gain (net of taxes) for the contribution of the net assets of Chrome to the Chrome Data Solutions joint venture; a $3.4 million, or $0.08 per share, gain (net of taxes) from the sale of certain Chrome branded assets that were not contributed to our Chrome Data joint venture; and a $3.9 million, or $0.09 per share, non-cash charge (net of taxes) from an adjustment to fair value relating to a warrant. GAAP net income for the nine months ended September 30, 2011 was positively impacted by a $22.4 million, or $0.53 per share, non-cash reduction in the valuation allowance against the Company's net U.S. deferred tax assets.

Non-GAAP Results for the Nine Months Ended September 30, 2012

  • Adjusted EBITDA for the nine months was $71.5 million, as compared to $65.6 million for the same period in 2011.

  • Adjusted net income for the nine months was $35.4 million, as compared to $33.2 million for the same period in 2011.

  • Diluted adjusted net income per share for the nine months was $0.81, as compared to $0.78 for the same period in 2011.

Mark F. O'Neil, chairman and chief executive officer of Dealertrack Technologies, Inc., commented, "Our healthy third quarter performance allows us to remain squarely on track to achieve our full-year revenue expectations and our adjusted EBITDA margin target of approximately 25%, with revenue from recent acquisitions further contributing to our results. In addition to organic growth in our transaction and subscription businesses in the quarter, we are excited to further broaden our market opportunity with the addition of ClickMotive to our digital retailing suite. ClickMotive significantly strengthens Dealertrack's existing eCarList digital retailing capabilities with an expanded website and digital marketing platform. Importantly, it gives Dealertrack access to a part of dealership advertising budgets, in addition to their technology budgets. We believe investments we are making to both broaden and deepen our product portfolio are improving our market leadership and position us for long-term growth."

Updated Guidance for 2012

Dealertrack updated its 2012 annual guidance based on its third quarter results and for the acquisitions of ClickMotive and the assets of Ford Motor Company of Canada Limited's iCONNECT Direct DMS business as follows:

Expected GAAP Results

  • Revenue for the year is expected to be between $387.0 million and $390.0 million, an increase from prior guidance of between $381.0 million and $385.0 million.

  • GAAP net income for the year is expected to be between $21.5 million and $23.0 million, a decrease from prior guidance of between $24.5 million and $26.5 million.

  • Diluted GAAP net income per share for the year is expected to be between $0.49 and $0.52, a decrease from prior guidance of between $0.55 and $0.60 per share.

Expected Non-GAAP Results

  • Adjusted EBITDA for the year is expected to be between $96.5 millionand $98.0 million, an increase from prior guidance of between $96.0 millionand $98.0 million.

  • Adjusted net income for the year is expected to be between $48.0 millionand $49.5 million, an increase from prior guidance of between $47.5 millionand $49.5 million.

  • Diluted adjusted net income per share for the year is expected to be between $1.08 and $1.12, an increase from prior guidance of between $1.07 and $1.12.

The updated guidance assumes car sales will be generally consistent with what we have seen during the first nine months of 2012, with new car sales by franchised dealers of approximately 14.3 million units and used car sales by franchised dealers of approximately 14.5 million units for 2012, an increase from our previous assumptions of 14.2 million units and 14.0 million units, respectively. Diluted GAAP net income and adjusted net income per share guidance for the year continue to be based on an estimated 44.3 million diluted weighted average shares outstanding. The updated guidance assumes an effective tax rate of 39% for the full year, a decrease from prior guidance of 39.5% at the mid-point.

Conference Call

Dealertrack will host a conference call to discuss its third quarter 2012 results and other matters on November 8, 2012 at 5:00 p.m. Eastern Time. The conference call will be webcast live on the Internet at ir.dealertrack.com. In addition, a live audio of the call will be accessible to the public by calling 877-303-6648 (domestic) or 970-315-0443 (international); no access code is necessary. Callers should dial in approximately 10 minutes before the call begins. A replay will be available on the Dealertrack Technologies, Inc. website until November 30, 2012.

Non-GAAP Financial Measures

The non-GAAP measures of adjusted EBITDA and adjusted net income disclosures are not presented in accordance with generally accepted accounting principles (GAAP) and are not intended to be used in lieu of GAAP presentations of net income. Adjusted EBITDA is a non-GAAP financial measure that represents GAAP net income (loss) excluding interest, taxes, depreciation and amortization expenses, stock-based compensation, and contra-revenue and may exclude certain items such as: impairment charges, restructuring charges, impact of acquisition-related activity (including contingent consideration changes, compensation expense, basis difference amortization, and professional service fees), realized gains on sales of previously impaired securities, gains or losses on sales or disposals of subsidiaries and other assets, and certain other non-recurring items.

All stock-based compensation expense is excluded from the calculation of the adjusted EBITDA non-GAAP measure. This may reduce the comparability with prior periods. This non-cash expense was included in presentations prior to fourth quarter 2011.

Adjusted net income is a non-GAAP financial measure that represents GAAP net income (loss) excluding stock-based compensation expense, the amortization of acquired identifiable intangibles, and contra-revenue, and may also exclude certain items such as: impairment charges, restructuring charges, impact of acquisition-related activity (including contingent consideration changes, compensation expense, basis difference amortization, and professional service fees), realized gains on sales of previously impaired securities, gains or losses on sales or disposals of subsidiaries and other assets, adjustments to deferred tax asset valuation allowances, non-cash interest expense and certain other non-recurring items. These adjustments to net income (loss), which are shown before taxes, are adjusted for their tax impact.

Adjusted EBITDA and adjusted net income are presented because management believes that they provide additional information with respect to the performance of our fundamental business activities and are also frequently used by securities analysts, investors and other interested parties in the evaluation of comparable companies. Adjusted EBITDA and adjusted net income are also presented because the purchase accounting treatment of acquisitions can have a negative impact on our GAAP results because the depreciation and amortization expenses associated with acquired assets, in particular intangibles which tend to have a relatively short useful life, can be substantial in the first several years following an acquisition. As a result, we monitor our adjusted EBITDA and adjusted net income and other business statistics as a measure of operating performance in addition to net income and the other measures included in our consolidated financial statements. Management believes the adjusted EBITDA and adjusted net income information is useful to investors for these reasons. Adjusted EBITDA and adjusted net income are non-GAAP financial measures and should not be viewed as an alternative to GAAP measures of performance. Management believes the most directly comparable GAAP financial measure for adjusted EBITDA and adjusted net income is GAAP net income (loss) and has provided a reconciliation of adjusted EBITDA to GAAP net income (loss) and adjusted net income to GAAP net income (loss) in this press release.

About Dealertrack Technologies (www.dealertrack.com)

Dealertrack's intuitive and high-value web-based software solutions and services enhance efficiency and profitability for all major segments of the automotive retail industry, including dealers, lenders, OEMs, third-party retailers, agents, and aftermarket providers. In addition to the industry's largest online credit application network, connecting more than 19,000 dealers with more than 1,200 lenders, Dealertrack delivers the industry's most comprehensive solution set for automotive retailers, including Dealer Management System (DMS),Inventory, Sales and F&I, Interactive, and Registration and Titling solutions. For more information visit www.dealertrack.com.

Safe Harbor for Forward-Looking and Cautionary Statements

Statements in this press release regarding Dealertrack's expected 2012 performance based on both GAAP and non-GAAP measures, the long-term outlook for its business, the benefits of the ClickMotive acquisition and all other statements in this release other than the recitation of historical facts are forward-looking statements (as defined in the Private Securities Litigation Reform Act of 1995). These statements involve a number of risks, uncertainties and other factors that could cause actual results, performance or achievements of Dealertrack to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements.

Factors that might cause such a difference include: economic trends that affect the automotive retail industry or the indirect automotive financing industry including the number of new and used cars sold; credit availability; reductions in auto dealerships; increased competitive pressure from other industry participants, including Open Dealer Exchange, RouteOne, CUDL, Finance Express and AppOne; the impact of some vendors of software products for automotive dealers making it more difficult for Dealertrack's customers to use Dealertrack's solutions and services; security breaches, interruptions, failures and/or other errors involving Dealertrack's systems or networks; the failure or inability to execute any element of Dealertrack's business strategy, including selling additional products and services to existing and new customers; Dealertrack's success in implementing an ERP system; the volatility of Dealertrack's stock price; new regulations or changes to existing regulations; the integration of recent acquisitions and the expected benefits, as well as the integration and expected benefits of any future acquisitions that Dealertrack may pursue; Dealertrack's success in expanding its customer base and product and service offerings, the impact of recent economic trends, and difficulties and increased costs associated with raising additional capital; the impairment of intangible assets, such as trademarks and goodwill; and other risks listed in Dealertrack's reports filed with the Securities and Exchange Commission (SEC), including its most recent Annual Report on Form 10-K. These filings can be found on Dealertrack's website at www.dealertrack.com and the SEC's website at www.sec.gov. Forward-looking statements included herein speak only as of the date hereof and Dealertrack disclaims any obligation to revise or update such statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events or circumstances, except as required by law.

DEALERTRACK TECHNOLOGIES, INC.

Consolidated Statements of Operations

(In thousands, except per share amounts)

(Unaudited)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2012

2011

2012

2011

Net revenue

$

99,084

$

95,793

$

287,097

$

262,035

Cost of revenue

55,475

52,129

162,337

145,121

Product development

2,874

3,278

8,812

9,749

Selling, general and administrative

35,307

33,342

103,502

95,317

Total operating expenses

93,656

88,749

274,651

250,187

Income from operations

5,428

7,044

12,446

11,848

Interest expense, net

(3,033

)

(263

)

(6,984

)

(308

)

Other income (expense), net

(5,271

)

72

(6,121

)

171

Gain on disposal of subsidiary and sale of other assets

-

-

33,193

-

Earnings from equity method investment, net

429

-

737

-

Realized gain on securities

4

-

4

409

Income (loss) before (provision for) benefit from income taxes, net

(2,443

)

6,853

33,275

12,120

(Provision for) benefit from income taxes, net

(488

)

(1,492

)

(13,320

)

20,135

Net (loss) income

$

(2,931

)

$

5,361

$

19,955

$

32,255

Basic net (loss) income per share

$

(0.07

)

$

0.13

$

0.47

$

0.78

Diluted net (loss) income per share

$

(0.07

)

$

0.13

$

0.45

$

0.76

Weighted average common stock outstanding (basic)

42,661

41,396

42,413

41,146

Weighted average common stock outstanding (diluted)

42,661

42,497

43,909

42,367

Adjusted EBITDA - previous presentation (non-GAAP) (a)

$

23,554

$

23,041

$

61,298

$

56,989

Adjusted EBITDA margin - previous presentation (non-GAAP) (b)

24

%

24

%

21

%

22

%

Adjusted EBITDA (non-GAAP) (a)

$

27,044

$

25,786

$

71,500

$

65,584

Adjusted EBITDA margin (non-GAAP) (b)

27

%

27

%

25

%

25

%

Adjusted net income (non-GAAP) (a)

$

12,455

$

14,654

$

35,396

$

33,194

Diluted adjusted net income per share (non-GAAP)

$

0.28

$

0.34

$

0.81

$

0.78

Stock-based compensation expense was classified as follows:

Cost of revenue

$

603

$

456

$

1,828

$

1,308

Product development

169

176

589

548

Selling, general and administrative

2,718

2,113

7,785

6,857

$

3,490

$

2,745

$

10,202

$

8,713

(a) See Reconciliation Data.
(b) Represents adjusted EBITDA as a percentage of net revenue.
(c) For the three months ended September 30, 2012, the diluted adjusted net income per share of approximately $0.28 is based on 44,081,500 diluted weighted average shares outstanding.

DEALERTRACK TECHNOLOGIES, INC.

Condensed Consolidated Balance Sheets

(Dollars in thousands)

(Unaudited)

September 30,
2012

December 31,
2011

ASSETS

Cash and cash equivalents

$

163,700

$

78,709

Marketable securities

45,413

46

Customer funds

3,861

1,097

Customer funds receivable

20,822

18,695

Accounts receivable, net

46,772

37,588

Deferred tax assets

9,019

9,171

Prepaid expenses and other current assets

24,488

23,011

Total current assets

314,075

168,317

Marketable securities - long-term

8,192

-

Property and equipment, net

22,702

21,637

Software and website development costs, net

40,348

37,341

Investments

124,179

89,000

Intangible assets, net

99,289

96,441

Goodwill

242,082

200,840

Deferred tax assets, net

31,654

34,421

Other assets - long-term

14,308

12,356

Total assets

$

896,829

$

660,353

LIABILITIES AND STOCKHOLDERS' EQUITY

Accounts payable and accrued expenses

$

36,781

$

41,194

Customer funds payable

24,683

19,792

Deferred revenue

10,103

9,115

Deferred tax liabilities

3,473

3,443

Due to acquirees

10,966

-

Capital leases payable

122

255

Total current liabilities

86,128

73,799

Long-term liabilities

246,162

91,798

Total liabilities

332,290

165,597

Total stockholders' equity

564,539

494,756

Total liabilities and stockholders' equity

$

896,829

$

660,353